Delta Air Lines (NYSE:DAL) today announced that it will create a new low-fare subsidiary designed to appeal to the growing number of price-driven travelers. The main features include:
- Separate subsidiary. As a wholly-owned subsidiary of the company, the new operation of 36 Boeing 757 jets will launch in 2003 to compete head-to-head with other carriers in the low-fare market segment and to strengthen Delta’s current portfolio of businesses. The new subsidiary expects that most one-way fares to be between $79 and $299.
- Cost-competitive business model. The subsidiary will create a new, cost-competitive business focused on increased productivity and the efficient use of Delta’s current assets, including fleet, operations, technology and people. Its unit costs will be approximately 20 percent below the available seat mile costs of Delta’s mainline 757s.
- Distinct brand/customer experience. The new subsidiary will feature low fares, a distinctive brand, and amenities and services to meet the expectations of price-savvy customers. It also will feature the elements required for a discount carrier - simple low fares, low costs, high-utilization and direct purchasing methods for tickets. This service will initially operate its dedicated fleet of 757s in the Northeast - Florida market, with later expansion across Delta’s United States network.
“The new subsidiary announced today represents an aggressive and proactive initiative to meet the burgeoning competition from low-fare carriers,” said Leo F. Mullin, Delta’s chairman and CEO. “We have previously noted that low-fare carriers represent a real threat to Delta - substantially more than that from other hub and spoke competition. Low-fare carriers have been making significant inroads particularly during this period of extreme financial duress for the industry. Even in the midst of these challenges, Delta intends, through the actions announced today, to meet the low-fare carriers head on - first to halt their progress and then to regain competitive share. The goals are an enhanced competitive position for our company and higher profitability.”
The announcement follows intensive market analysis and planning. “We’ve listened to our customers, and we know what they want - low fares and better value,” said Frederick W. Reid, Delta’s president. “Our research shows that more than 70 percent of customers make their purchase decision almost exclusively on price. In response, we’re making aggressive changes to allow us to better respond to our price-driven customers. Our subsidiary will be low-fare, and it will be unit cost competitive with this tough airline segment.”
“Delta’s new service will be a powerful addition to our portfolio of products that are focused on different customer needs. Delta will leverage its full array of services - including regional jets, network service through our hubs, international service, codeshare relationships and, now, a low-fare subsidiary - as a huge competitive advantage.”
John Selvaggio, 56, named in August to lead the new low-fare strategy, will become president of the new subsidiary and will report directly to Reid.
Delta plans to announce the new unit’s name, product and service elements prior to the launch of service in 2003. Details regarding the subsidiary’s business model, and marketing and people strategies will follow.
More details at www.delta.com